Buying a portfolio of rental properties that r cashflow positive.

[Ryan Diaz]

So this is our first post here on bigger pockets. We are trying to build our real estate business so we can work for ourselves and quit our jobs. We have been calling agents all over the US and looking for deals. We currently live and own a property in California but are looking to expand. We have come across an agent that has a book of 22 properties that they are looking to sell as a whole for their client. We've looked up the properties online and done some research. They are all currently rented and the total rental is more than 1% of the total purchase price. They range from SFR to quads. I am curious as to options to purchase this book as it is more than what we were looking for but if the numbers make sense we should go for it. The total value they are asking for the book of properties is about $2,500,000 and they are all currently rented for $28,500 a month total. If anyone has any advice on where to go for funding for something like this or how to structure this deal we would really appreciate the help. Thanks for looking...

[David Faulkner]

Where are the properties located? How familiar are you with that market, assessing the market value of the portfolio if it were sold as individual units to retail investors using actual, valid, sold comps and not the listing agent's word or zestimates? How difficult would it be to liquidate some or all of these properties at profit if you needed or chose to? What class of neighborhood and tenant are they and how easy or difficult it would be to keep those units filled with rent paying tenants, and if the current income (and expenses) is with market rents (and expenses)? What are your estimates based on? Do you have 2 years worth of rent rolls and expenses to go on? How long have the current tenants been in place under the current terms and how long to go on their current leases? If the portfolio is performing well, then why is the owner trying to sell? If not, why not, and do you have a plan and ability to fix that? What is the owners equity position on this portfolio and do they have flexibility possible in sales price or terms? Do you have a trusted, proven team on the ground there ready to manage them for you or will you be managing them yourself if they are close? What is the condition of the units? Do they have deferred maintenance? Capex needed? Roofs? Water heaters? plumbing? electric? Are the costs of these repairs factored into the price? How do you plan to finance this deal? Do you have a bank that can give you a commercial or portfolio blanket loan from a smaller regional bank? What is your down payment and reserves? Do you have an established track record of these type of investments to show the bank? What are the terms of the loan? How much would the portfolio likely cash flow under these terms, rental income, and expenses (not using 50% rule or 1% rule or any other garbage rules of thumb, but honest to goodness grass roots analysis of all the individual factors backed by actuals or close market comparables for all of these properties before slapping down $2.5M)?

A few additional questions to consider, if you haven't already. First order of business would be determining if you should buy it, and the second order of business is figuring out how. Any bank with any sort of underwriting standards is going to ask, already know, and independently verify the answers to the most of the above questions, so you might as well answer them up front and bring the bank documentation of your analysis. The other option is private money, from well to do family and friends in your case if you are new, and in that case you should also present this analysis before asking them to put their capital at risk on your deal.

If you haven't thought about these questions, don't have the answers, this will be your first rentals, and you tell me the portfolio is in another state or area that's not within a 2 hour drive of where you currently live, then my advise is don't do this deal. You can still do the analysis as it will be helpful and in the process you will likely find out some things that make the deal look less attractive and will not likely be able to lock up the financing anyhow. This is not easy and takes time to master and effectively scale up, regardless of what the gurus and podcasts may try to tell you. Sorry to seem so negative ... just trying to keep it real. Please feel free to try to prove me wrong.